Saturday 16 March 2013, the day they opened Pandora’s box
Usually around 6.30 in the morning is when the little one wakes up for a feed: she is the daily alarm. The ritual is the same each day, coffee, cigarette and catch up on news on twitter. The morning of Saturday the 16th was different as the previous night an extraordinary Eurogroup was held for Cyprus, where everyone expected a final solution for a bailout would be agreed upon. Cypriot President Nicos Anastasiades, the preferito of European leaders and institutions, unlike the difficult communist Demetris Christofias, was willing to play ball and agree a program with the troika, close the matter and move on until the next bailout.
First it was a tweet from Matina Stevis asking how much of the 5.8 billion euros from deposits would come from Russian oligarchs. I thought since it was so early in the morning, I was not catching things quite right. It was Peter Spiegel’s tweet saying Cyprus will impose a 6.75% levy on deposits below 100,000 euros and 9.99% for those above that brought it home.
They went and did it, I thought. This is going to be massive.
I had first heard of banks runs at the university’s macroeconomics intro course on central banks, lenders of last resort and bank failures. For some reason I have associated bank runs with black and white pictures of people queuing en masse outside banks in the years following the Great Depression. In my time I have seen them on TV in Argentina in 2001 and on much smaller scale in the UK after the collapse of Northern Rock in the end of 2008. Now it was here and I was right in the thick of it.
I switched on the TV and all the local channels were playing their usual Saturday morning schedule. After a marathon Eurogroup meeting the night before twitter went quiet as journos got some sleep. There was no more information coming out of Brussels. It felt like I was the only person awake, standing on the bridge looking at the iceberg ahead as everybody else was sleeping, oblivious to the looming danger.
I flicked through the channels again, no special reports or bulletins, folk dancing and cartoons. I left the TV on, had to occupy myself with something. I went to the Cyprus Central Bank’s website to look at statistics, MFIs, Deposits. Then I visited the Bank of Cyprus and Laiki Bank websites and pulled up their balance sheets. It was only then that the folk dancing program was interrupted and the woman came on with a special report on the “dramatic” developments in Brussels. At long last, I thought. I am not going mad here, this is going the change life on this island as we know it.
The TV played Finance Minister Michalis Sarris’s press conference following the Eurogroup, when he announced what had just been agreed. He carried the look of a man that had been battered all night. He seemed lost, only just realizing what had hit him.
The local channels’ correspondents in Brussels started providing more insight into the overnight negotiations and how Cyprus was ambushed, lacking a convincing response to the demands of the IMF, Germany, the Commission and the ECB, which wanted Nicosia to cross the Rubicon and haircut bank depositors. It was a demand that went against any previous crisis management experience since 1933, removed from the way other similar cases were dealt with since the financial crisis in 2008 or even as recently as February when the Eurogroup president and Dutch Finance Minister Jeroen Dijsellbolem bailed out SNS Reaal or Italy did for Monte Paschi.
Since November last year the integrity of Cypriot banking practices combined with the Russian presence on the island had entered the German political agenda. As on previous occasions, the crisis management approach was dictated by the objective of keeping Angela Merkel’s coalition stable and improving her re-election chances. Domestic German politics have had a strong influence on shaping the policies of bailout programs.
It was around 9.00 a.m. that the first report came in that people were queuing outside banks in Limassol. A man in a nearby town in a symbolic move went to the bank to get his money out with a bulldozer.
The first reactions of local political parties started coming in expressing strong opposition to what Anastasiades had agreed just a few hours ago in Brussels. Even DEKO, the party that supported him in the presidential election campaign and is part of the governing coalition was against the deal, using wording and a tone that did not leave much more for a political manoeuvre later on. It became obvious very quickly that the ratification of the deal in Parliament would not be a certainty.
Meanwhile, the reports of queues across Cyprus and ATMs running out of cash were coming in thick and fast.
The phone rang; Nick Malkoutzis was at the other end. He asked if it was me that went to the bank with the bulldozer. Neither of us could believe what the hell had just happened. We exchanged our disbelief, frustration and concerns. This had bank runs and capital controls written all over it and given the news coming in from around the island it was unfolding exactly as one would expect.
The other Hellenic troika member, Efi Efthimiou, called. Her first words: “What the fuck are they doing?”. I did not have an answer.
By early afternoon, it was time to see for myself what was going on. I got on the bike and went to the closest ATM. The queue was unusually long for the time and the location of the cashpoint. Stood in the line and tried my luck. The ATM was “facing difficulties”. This deserves a tweet I thought.
I just sat there on my bike and looked at the people who I had just told that the machine was not giving out cash still queuing in hope that it may not “face difficulties” when it comes to withdrawing their money. You could sense a prevailing feeling of numbness and denial. I tried another ATM further down the road. The same picture, unusually long queues only this machine was giving out cash.
Word had spread that Laiki bank was the one most exposed and would be hit badly should things go in the wrong direction. Its ATMs had longest queues as people wanted to take as much money out of their accounts as possible.
In the meantime, more information about the events in Brussels was emerging. Anastasiades was – apparently – openly blackmailed by the ECB’s Joerg Asmussen that the central bank would pull the plug from Laiki’s ELA life support. When Anstasiades left the negotiations in frustration, Asmussen called Draghi and requested for ECB to be ready for the collapse of two Cypriot banks, reports said. The word “blackmail” was dominating the debate on TV talk shows.
The country’s central bank (because the ECB is also Cyprus’s central bank) was threatening to close down the banking system and force the sovereign to default and eventually exit the euro. Was this real? It was getting even more insane by the minute. This was blatant bullying to submission.
Cyprus was expected to submit the necessary bills to Parliament over the weekend and vote by Monday so everything would be in place before the banks would open after Monday’s scheduled public holiday. I wondered whether they were completely disconnected from reality or just plain mad.
A country that is part of a union of free movement of capital, which had attracted billions of euros from overseas and just a few hours ago had its economic model destroyed, was expected to do this in just three days and have the banks open as planned on Tuesday without expecting massive capital flight that would cripple the banking system?
Back in 2001, Argentina’s crisis grabbed my attention and I had naturally dug much deeper into it after the crisis broke out in Greece. The black and white photos of the Great Depression would now be in colour, in a eurozone country, in the year 2013 and it was all happening around me.
As the day progressed into early evening and the views of the political parties on the island were crystallising, it was apparent that there was serious doubt about whether the bill would pass through Parliament. Uncertainty was growing, would the ECB really pull the plug on Tuesday?
Well into the night, it became clear that this deal’s intention was to shrink the local banking sector to a level that Germany would consider acceptable. Debates on TV panels were openly addressing the option of a euro exit and alternative solutions to save the banking system. The Russian option was repeatedly brought up. Is there really a credible plan B?
It was getting late; as much as I tried it was impossible to switch off. Went outside and lit a cigarette. They opened Pandora’s Box I thought, what demons will come out of it?
It did not take long before we found out…